2 resource.guide.for.sustainable.development
Acknowledgements: Thanks to Lucia Athens, Bob Collier, Hamilton
Hazlehurst, J...
3 resource.guide.for.sustainable.development
table of contents
EXECUTIVE SUMMARY ............................................
4 resource.guide.for.sustainable.development
Energy and Atmosphere ..........................................................
20 resource.guide.for.sustainable.development
economics
of sustainable design
Green Can Be Gold
The market is changing. Ma...
21 resource.guide.for.sustainable.development
Understanding Choices and Additional Costs Beyond Base Building Budget
Every...
22 resource.guide.for.sustainable.development
Guidelines Must Be Repeatable
The challenge of this resource guide is to cre...
23 resource.guide.for.sustainable.development
Taking a broader perspective, Equation 1 (the
Financial Return Equation) wou...
24 resource.guide.for.sustainable.development
One of the challenges in establishing a framework for analyzing the economic...
25 resource.guide.for.sustainable.development
After these four factors are reviewed, we will present some numeric examples...
26 resource.guide.for.sustainable.development
Table2
27 resource.guide.for.sustainable.development
Flexibility and Economic Sustainability
A commercial building typically last...
28 resource.guide.for.sustainable.development
Providing the flexibility to switch to sustainable solutions when it adds va...
29 resource.guide.for.sustainable.development
for high quality, highly reliable power to keep the computers and electronic...
30 resource.guide.for.sustainable.development
At the same time, without well-defined programs to promote brand awareness a...
31 resource.guide.for.sustainable.development
Risk Reduction Positive Impact on Value
All real estate projects face a numb...
32 resource.guide.for.sustainable.development
The four examples are:
1. The analysis of low emission materials at the buil...
33 resource.guide.for.sustainable.development
In Equation 7, BTCFj
(j=1, 2, ..., N) equals the before-tax cash flow in yea...
Economics Of Sustainable Development
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Economics Of Sustainable Development

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Economics Of Sustainable Development

  1. 1. 2 resource.guide.for.sustainable.development Acknowledgements: Thanks to Lucia Athens, Bob Collier, Hamilton Hazlehurst, Jim Mueller and David Rousseau for their review and com- ments on the first draft. Additional thanks to Ed Geiger and the UEI board for their commitment and ongoing support. For technical comments and feedback, email richardf@mithun.com Urban Environmental Institute Seattle, WA Sustainability Technical Review Committee David Rousseau, Co-Chair CONSULTANT TEAM: Mithun Architects+Designers+Planners – Consultant Lead Bert Gregory, AIA, Team Leader Richard Franko, AIA, Project Manager, Editor Debra Guenther, Landscape Robert Mohr, Graphics & Document Diane Scheaffer, Graphics & Layout Chris Dixon, Ratings Analysis / Reviewer ARUP – Mechanical, Electrical, Envelope Alisdair Mcgregor, Mechanical Maurya McClintock, Envelope, Mechanical Cole Roberts, Mechanical Peter Balint, Electrical 2020 Engineering – Water Systems Chris Webb, P.E. Mark Buehrer, P.E. Built-e – Materials Lynne Barker, VP Business & Policy Development ValueMiner, Inc. – Economics Jeff Eder
  2. 2. 3 resource.guide.for.sustainable.development table of contents EXECUTIVE SUMMARY ................................................................................................. 6 Goals................................................................................................................................ 8 David Rousseau for the Urban Environmental Institute Principles ....................................................................................................................... 10 Recommendations ......................................................................................................... 13 payback under five years payback for five years and over long term investment Economics of Sustainable Design ................................................................................ 20 Payback/ROI/LCA Future Proofing...............................................................................................................37 Rating System Comparison and Recommendation..................................................... 38 LEEDTM /BREEAM/GB Tools/LEEDTM – modified Cost Impact What level? South Lake Union Context............................................................................................ 43 History, natural features, infrastructure Sustainability Strategies ............................................................................................... 46 Sustainable Sites and Landscape ............................................................................................................... 47 overview ....................................................................................................................................................... 47 alternative transportation ............................................................................................................................. 49 heat islands: vegetated roofs .......................................................................................................................... 52 heat islands: big trees and green streets ......................................................................................................... 55 heat islands: light colored roofs ......................................................................................................................61 reduction of light pollution ............................................................................................................................ 63 habitat connections and expansion ............................................................................................................... 64 making sustainable sites visible..................................................................................................................... 69 payback summary: sites................................................................................................................................. 72 Water Efficiency...........................................................................................................................................73 overview ....................................................................................................................................................... 73 water efficient landscaping ............................................................................................................................ 78 reuse of treated wastewater effluent for flushing toilets ................................................................................. 80 reuse greywater for irrigation........................................................................................................................ 84 permeable surfaces on sidewalks and streets ................................................................................................. 86 stormwater treatment and detention ........................................................................................................... 90 rainwater collection for flushing toilets .......................................................................................................... 91 water conservation........................................................................................................................................93 payback summary: water efficiency................................................................................................................97
  3. 3. 4 resource.guide.for.sustainable.development Energy and Atmosphere ............................................................................................................................ 98 overview ...................................................................................................................................................... 98 distributed heat pumps ............................................................................................................................... 102 chilled water............................................................................................................................................... 104 Power Generation co-generation .............................................................................................................................................106 photovoltaics...............................................................................................................................................109 fuel cells ......................................................................................................................................................114 microturbines .............................................................................................................................................. 117 wind energy ............................................................................................................................................... 120 carbon neutrality ........................................................................................................................................ 122 Building/Block level energy efficiency ..........................................................................................................................................125 indoor environmental quality ....................................................................................................................... 131 payback summary: energy ............................................................................................................................ 135 Materials and Resources ........................................................................................................................... 136 overview ..................................................................................................................................................... 136 building reuse ............................................................................................................................................. 138 construction waste management .................................................................................................................141 resource reuse ............................................................................................................................................ 144 storage and collection of recyclables ..............................................................................................................147 recycled content ......................................................................................................................................... 150 local/regional materials ............................................................................................................................... 153 rapidly renewable materials ........................................................................................................................ 156 certified wood ............................................................................................................................................. 159 payback summary: IEQ............................................................................................................................... 162 Indoor Environmental Quality .................................................................................................................. 163 low-emitting materials ............................................................................................................................... 164 paybacksummary .......................................................................................................................................168 Future Research and Development..............................................................................170 Appendix ...................................................................................................................... 172 economics – sample building economic analysis ...........................................................................................172 sustainable design resources: internet .......................................................................................................... 179 about urban environmental institute........................................................................................................... 182
  4. 4. 20 resource.guide.for.sustainable.development economics of sustainable design Green Can Be Gold The market is changing. Market demand will be the true driver of sustainable development. In 1999, the USGBC LEEDTM registeredsquarefootageofbuildingsintheUnitedStateswasidentifiedas“notapplicable.” In 2000, approximately 8,400,000 square feet were registered, and by September 2002 over 71,000,000 square feet of space had been registered to certify within the program. Understanding this, developers who provide buildings meeting credible sustainable criteria can have an edge over their competition today and meet the market demand of tomorrow. Green can be gold. Building value can be increased through incorporation of targeted sustainable strategies. Making Wise Choices and Sustainable Cost Transfer All projects have a fixed budget for which costs must be controlled to meet the budget criteria. Along the path to a completed building, the project team must make a series of choices to determine the makeup of the final constructed project. For example, the team could choose to have a marble floor or could allocate those costs to a more energy efficient lighting system, while still remaining within the original budget parameters. Recreational Equipment, Inc. (REI) is a good example of a company whose capital projects need to meet the bottom line (“no dividend impact”), while also leading the industry in incorporating sustainable strategies. Opening in 1996, REI’s Seattle Flagship store broke new ground in green architecture. The Flagship was recognized by the AIA with a Regional Honor Award and named one of the AIA Top Ten Green Buildings in the United States in 1999. The store also exceeded the 5th year annual sales target the first year. REI’s Denver Flagship was 1.5% under the building construction budget, was named one of the AIATop Ten Green Buildings in the United Statesin2001,receivedaNationalTrustforHistoricPreservation Honor Award, and exceeded the first year sales goals. These successes are a result of making wise choices and transferring costs on a holistic basis. Sustainable Cost Transfer within a fixed budget is a concept that eliminates certain elements and transfers those costs to other elements that have a higher environmental benefit. A common strategy in cost transfer is to move mechanical systems budgets to building envelope budgets. For example, air conditioning can often be eliminated through good design, and the budget line items transferred to operable windows for natural ventilation. REI Flagship Store, Seattle Robert Pisano / Mithun
  5. 5. 21 resource.guide.for.sustainable.development Understanding Choices and Additional Costs Beyond Base Building Budget Every project includes many choices and requires the team to make rapid decisions. We grouped some typical sustainable choices into three categories of relative economic viability: 1. Economically viable 2. Flexibility provides economic viability 3. No direct economic viability Category 1 – Economically Viable: Strategies that are economically viable because the increased income, decreased expenses and/or lower risk are sufficient to offset the incremental cost of adopting the strategy. Category 2 – Flexibility Provides Economic Viability: Strategies where providing the flexibility to implement solutions at a later date is economically viable because the increased income, decreased expenses and/or lower risk are not sufficient to offset the incremental cost of adopting the strategy for a short term investor. However, inflation, technology development and/or a longer investment horizon for a subsequent buyer are expected to make the strategies economically viable in the long term. Category 3 – No Direct Economic Viability – Strategies that are not economically viable because the increased income, decreased expenses and/or lower risk are not sufficient to offset the incremental cost of adopting the strategy. Costs for these elements must be justified through trade out with other building elements, environmental values incentives, or allocation from marketing budgets for improving brand identity.
  6. 6. 22 resource.guide.for.sustainable.development Guidelines Must Be Repeatable The challenge of this resource guide is to create guidelines that can be applied repeatedly within the global development community. The guidelines for sustainability we outline can be followed without requiring reduced financial return expectations, additional funding outside the norm, and/or special incentives beyond what is now offered by institutions or government. More specifically, the guidelines for sustainable development must provide developers and investors with returns for a given level of risk that are comparable to those they would receive from more traditional non- sustainable development projects. It is important to note that we recognize funds may be available for research and development from institutions interested in advancing sustainability within the construction industry. However, we have chosen to treat these funds as potential incentives and have not included them in the baseline analyses. Background All property development projects have goals for profitability and expected financial return. Success in meeting these goals is dependent on many things, including the choices the project team makes as they work to complete the building. This section of the resource guide describes a framework for making those choices in a way that enhances sustainability and project financial performance. The economics associated with property development are reasonably straight-forward. To be successful, the income received from renting space within and/or selling a property needs to exceed the cost of designing, developing, financing, building and operating the property. These factors are summarized in Equation 1. The level of profitability for the project is determinedbyhowmuchthesumoftheRental Income and the Sales Price exceeds the total of the five cost elements. As discussed later, the valueoftheprojectisdeterminedbythetiming of the different cash flows and the risk associatedwiththecashflows.Theprofitability required to adequately compensate investors forthelevelofrisktheyassumewhenfinancing development varies by the type of project. Equation 1 The Baseline Financial Return Equation: Rental Income + Sales Price > Design Cost + Building Cost + Development Cost + Financing Cost + Operating Cost
  7. 7. 23 resource.guide.for.sustainable.development Taking a broader perspective, Equation 1 (the Financial Return Equation) would be modified as shown below in Equation 2 to capture the cost of environmental impacts andpublicinfrastructureimpacts collectively referred to as “externalities” – that are not normally charged directly to a development project. Given our guidelines, we will use Equation 1 as the basis for the economic analysis framework except for specific instances where there are existing programs that compensate developers for reducing environmental and/or infrastructure costs. In these cases we will use Equation 3. Equation 3 External Incentive Financial Return Equation: Rental Income + Sales Price + > Building Cost + Infrastructure Cost Program Design Cost + Compensation Development Cost + Financing Cost + Operating Cost + Environmental Cost + Infrastructure Cost Equation 2 Externality Cost Financial Return Equation: Rental Income + Sales Price > Building Cost + Design Cost + Development Cost + Financing Cost + Operating Cost + Environmental Cost + Infrastructure Cost
  8. 8. 24 resource.guide.for.sustainable.development One of the challenges in establishing a framework for analyzing the economics of sustainability is that many sustainable building practices have an impact on each element of the financial return equation as shown in Table 1 following. Table 1 1 Examination of Table 1 highlights the dilemma for those interested in promoting sustainable development. Up-front costs (design, development and building costs) often high while the measurable benefits are in the distant future. The dilemma is exacerbated by the fact that developers can’t always capture the benefit of reducing environmental costs and public infrastructure costs. Even if the latter problem of internalizing “externalities” could be overcome (we believe it can) the absence of a large number of well-documented cases where sustainable designs have generated increased rents and sale prices while reducing operating costs, could make it difficult to finance these types of projects. Breaking out of this “Catch-22” requires a framework for financial analysis that clearly identifies how sustainable development will affect project risk and returns. Framework for Economic Analysis Wehavealreadyidentifiedtheneedforthefinancialanalysisframeworktoaccountforthefactthatsustainable developmentwillhaveanimpactonallseven(ornine)elementsoftheFinancialReturnEquation. Completing the framework requires us to consider four more factors: 1. The perspective that should be used for evaluating each strategy; 2. The impact of ownership structure on investment incentives; 3. The way flexibility produces economic sustainability; and 4. The impact of soft benefits on project economics.
  9. 9. 25 resource.guide.for.sustainable.development After these four factors are reviewed, we will present some numeric examples to illustrate the application of the framework. Perspective The sections that follow the resource guide outline specific strategies for improving sustainability in commercial properties. These strategies fall into three categories (listed from lowest level to highest): 1. Strategies that can be implemented one building/block at a time; 2. Strategies that can be implemented within a cluster of buildings/blocks; and 3. Strategies that can be implemented at the neighborhood level Table 2 shows the category for each of the sustainability strategies. Completing the analysis of each strategy from the appropriate perspective is a critical first step. The analyses should start at the highest level and move down. The results of each analysis (inclusion or exclusion of the strategy) at each level need to be passed down to the level(s) below. If they are available, incentive programs from government agencies should also be examined at each level they apply, and the results passed down to the level(s) below. We can look at the South Lake Union neighborhood to see how this should be applied. Sustainability strategies that are identified as neighborhood level strategies in Table 2 should ideally first be evaluated by neighborhood stakeholders and the recommendations of the analysis passed on to the developers before the design of building clusters or individual buildings begins. For example, the decision that sharing parking stalls across the neighborhood is economically viable has a direct impact on the number of parking stalls that need to be included in each building cluster and each building within the project. Ownership Impact The economic analyses are further complicated by the fact that the benefits of some of the strategies that are recommended in the resource guide will apply to the occupants of the buildings and not necessarily the owners. For example, an increase in employee productivity or retention, from the inclusion of extensive daylighting, or the lower costs to a tenant during reconfiguration of a space during the lease term due to a raised floor mechanical distribution system, may not be directly recouped by the owner. Absent a change in standard lease terms and/or an ability to increase rents, many investments that provide clear economic benefits to the building occupants will not be economically viable for the owner. If we only consider developer perspective, then the sustainability strategies that are favored are those related to alternate sources for utilities.
  10. 10. 26 resource.guide.for.sustainable.development Table2
  11. 11. 27 resource.guide.for.sustainable.development Flexibility and Economic Sustainability A commercial building typically lasts 40 years in the United States. One of the best ways to minimize the environmental impact of a commercial building is to ensure that it is fully and productively utilized over that time period (or even longer). This is not as easy as it sounds. Over a 40 year period: the efficiency of most building systems will improve dramatically, prices for utilities will probably increase markedly, the facility’s occupants will experience many different business cycles, and the needs of these occupants will evolve as technology and business practices advance. One of the keys to a long life for a commercial property is the flexibility to adapt to these changing conditions. Fortunately, we now have tools that allow us to evaluate the flexibility that is designed in to a building. For the purposes of our discussion, we will define flexibility as the ability to respond to changing economic conditions. This type of flexibility has two financial impacts. First, giving the building the ability to adapt to changing conditions reduces the risk associated with investing in the building. The same flexibility also increases the building’s expected life, income and value. In short, adding flexibility can create economic sustainability. For a number of reasons, economic sustainability supports and reinforces environmental sustainability. First, avoiding the need to replace the building prematurely has a direct and obvious impact on reducing the overall impact on the environment. Second, the flexibility features that add the most value are generally the ones that will have the greatest impact on reducing environmental impacts. Understanding why this is so will take a little more discussion concerning the value of flexibility. The value of flexibility is directly related to the amount of uncertainty surrounding the factor(s) that require(s) adaptation. For example, if the price of butter was increasing and it routinely fluctuated by 50% or more every month, then the flexibility to switch to margarine would be very valuable to a business that used a large amount of butter. Alternatively, if the price of butter was stable or declining, then the flexibility to switch to margarine would probably not be worth much. For the development projects we are discussing, a large part of the uncertainty surrounds prices for commoditieslikeelectricityandwaterthatareincreasinglyscarceandhaveanumberofrelatedenvironmental impacts. As a result, the value of the flexibility to use alternative sources for these commodities is relatively high. The alternatives identified for these commodities rely on renewable sources and/or conservation. Carrying the logic one step further we can conclude that the value of adding the flexibility to switch to sustainable sources is relatively high (see Equation 4 for a summary of this logic chain). Equation 4 Flexibility Energy Price Uncertainty Value from Flexibility Sustainable Energy Solutions
  12. 12. 28 resource.guide.for.sustainable.development Providing the flexibility to switch to sustainable solutions when it adds value represents a middle ground between “sustainability at any cost” and “5 year payback or else”. We can now modify the Financial Return Equation as shown in Equation 5. Examplesofaddingtheflexibilitytoswitchtoasustainablesolutioncouldincludeprovidingtheinfrastructure requiredtoenablearapidphotovoltaicretrofit,providingforeffluentwastewatertreatmentretrofits,providing for fuel cell technology retrofits and providing for the later installation of on-site co-generation. Soft-Benefit Impact on Value The framework for analysis outlined above already has the ability to capture many of the soft benefits that sustainable strategies are expected to generate. Using the prior example within the framework of Equation 1 the project team: • Could choose to have a marble floor, • Could choose to spend the same money installing more energy efficient lighting, or it • Could choose to install both a marble floor and more energy efficient lighting because the benefit of having both is expected to increase rental income enough to offset the increased cost. Using the framework of Equation 5, some of the environmental benefits that sustainable strategies generate can also be captured. It is worth noting here there is no reason to restrict these benefits to cost reductions. Projecting increases in revenue is clearly justified in many cases. For example, developers in the Seattle area routinely charge more for properties located on the borders of greenbelt. Along similar lines, there are “soft” benefits beyond flexibility. These are associated with new energy solutions discussed in the previous section that should be included in the economic analysis. The growing “digital economy” is at least partially responsible for the increasing demand for “green” workspace. The same digital economy is having two related impacts on the energy industry that are not as widelypublicized.First,digitaltechnologyisradicallyimprovingtheefficiencycapablefrompowerconversion devices of all types (for example, LEDs for lighting). Second, the digital economy is also creating a demand Equation 5 Flexibility Value Financial Return Equation: Rental Income + Sales Price + Program Compensation > Building Cost + Value of Flexibility Design Cost + Development Cost + Financing Cost + Operating Cost + Index Cost + Environmental Cost + Infrastructure Cost
  13. 13. 29 resource.guide.for.sustainable.development for high quality, highly reliable power to keep the computers and electronic equipment that power the digital economy running smoothly. In a recent study the Electric Power Research Institute (EPRI) noted: “U.S. business activity is becoming more reliant on digital circuitry and more sensitive to incrediblyminutevariationsinpowersupply—variationsthatwouldhavegoneunnoticed in years past.” By designing a sustainable power grid to supply “the high quality, high 9s power” (99.999% available) that many high technology industries require, developers can justify and should charge a premium for “high quality, reliable, green” power. Beyond explicitly capturing soft benefits in one of the twelve elements of the Financial Return Equation (Equation 5) at the individual strategy level, there are soft benefits that need to be analyzed at both a building and cluster level. The two most important benefits that need to be analyzed at these levels are risk reduction and brand value. Brand Identity Positive Impact of Value The “dot bomb” phenomenon and its close linkage with the now bankrupt companies that spent millions of dollars advertising their unprofitable web sites has generated a great deal of cynicism regarding the concept of branding, particularly for new endeavors. While some of this cynicism is misplaced, there is an element of truth in it as well. Building a strong brand is not a simple task. Having said that, we will explore the potential for a branding effort to add value to sustainable development projects. Withintheframeworkthatwehavedefined,brandvalueappearsasvalueoverandabovethevalueassociated with the addition of each individual component as described in the previous section. In other words if brand value were present, the overall value impact of a bundle of features (or strategies) would be greater than the sum of the individual strategy impacts. Strong brands require at least three things: 1) A promise to provide a benefits package that people value; 2) Awareness that the owner of the brand can provide this value package; and 3) The consistent delivery of the promised value package. The combination of aesthetic benefits, environmental benefits, health benefits and the benefits associated withreliable,highqualitypowerthatcanbepartofthe“valuepackage”providedbysustainabledevelopment, has the potential to support the creation of a brand. With well-defined programs at the project level to promote awareness of the brand value package and ensure the consistent delivery of the value package to consumers, brand value could be added to the Financial Return Equation as shown in Equation 6.
  14. 14. 30 resource.guide.for.sustainable.development At the same time, without well-defined programs to promote brand awareness and ensure consistent delivery of the package to consumers, brand value should be regarded as a potential upside and re-evaluated when a branding program is developed. Equation 6 Brand Value Financial Return Equation: Rental Income + Sales Price + Value of Flexibility + Program Compensation > Building Cost + Brand Value Design Cost + Development Cost + Financing Cost + Operating Cost + Environmental Cost + Infrastructure Cost MithunConcept brochure for marketing green office spaces
  15. 15. 31 resource.guide.for.sustainable.development Risk Reduction Positive Impact on Value All real estate projects face a number of risks. The seven risks most commonly associated with real estate projects are shown in Table 3. Table 3 While each building and cluster needs to be analyzed individually, adherence to the guidelines outlined in the resource guide will reduce project exposure to inflation risk, business risk and environmental risk as shown in Table 4. Table 4 The reduced risk for projects adopting the guidelines should eventually reduce the rate of return required by investors providing capital for these projects. As seen later in the examples, depending on the cost associated with adopting these strategies, this reduction in the cost of capital can improve operating income and project value. Examples The application of the framework for valuing real estate projects will be illustrated by providing four examples of how the framework would be applied to valuing changes to a real estate project.
  16. 16. 32 resource.guide.for.sustainable.development The four examples are: 1. The analysis of low emission materials at the building level; 2. The analysis of energy saving fixtures at the building level; 3. The analysis of waste water treatment at the cluster level; and 4. The analysis of vegetative roofs at the building level. These examples may be viewed in detail in Appendix A: economics Analysis Overview The examples are intended to be realistic but they were not prepared with sufficient detail to support a project decision. There are two primary methods for valuing a real estate project. The simplest method states that a property’s indicated value equals its net operating income (NOI) divided by the investor’s required overall capitalization rate. Mathematically, the larger the denominator is, the smaller the left-hand side of the equation (i.e., value) will be. Therefore, investors with higher required rates of return will offer less for a property than those with lower rates. The other valuation method is the income capitalization approach. Under this valuation technique, the indicated value of the subject property equals the present value of the anticipated future income stream. Of course, an underlying premise of the income approach is that the property either generates income or has the potential to do so. In the simplest of all scenarios, the income approach states that a property’s indicated value equals its net operating income (NOI) divided by the investor’s required overall capitalization rate. Mathematically, the larger the denominator is, the smaller the value will be. Therefore, investors with higher required rates of return will offer less for a property than those with lower rate of return requirements. Analyzing the present value of projected cash flows is the basis of a more sophisticated approach to real estate project valuation. This methodology discounts anticipated cash flows to a present value, given an appropriate discount or capitalization rate. In other words, the income capitalization approach implies that the indicated value of the subject property equals the discounted value of the anticipated cash flows, whereby the land, improvements permanently attached to the land, and all rights associated with the land are capitalized into the income stream. On a before-tax basis, the indicated value equals the sum of the present value of the before-tax cash flows (BTCF) and the before-tax equity reversion (BTER). Using the terminology of Equations 1, 2, 3 and 5, the annual BTCF equals rental income minus operating cost and annualized debt service payments (financing cost), while the BTER equals the future sales price of the property minus selling expenses and the unpaid mortgage balance owed to the lender. Equation 7 shows the form of the equation for an income capitalization valuation. Equation 7 Sustainable Value Value = BTCF1 /(1+i)1 + BTCF2 /(1+i)2 +...+(BTCFN +BTERN )/1+i)N
  17. 17. 33 resource.guide.for.sustainable.development In Equation 7, BTCFj (j=1, 2, ..., N) equals the before-tax cash flow in year “j”; “i” equals the discount rate; “N” equals the holding period; and, BTERN equals the before-tax equity reversion in year “N.” Some of the methods outlined in the economics section (as well as software and systems for implementing these methods) are covered by one or more ValueMiner patents. Summary: Green can be Gold We have seen that the the economic viability of the sustainable strategies recommended in the resource guide fall in to three categories: 1. Strategies that are economically viable. 2. Strategies where the flexibility to implement at a later date are economically viable and worth investing in. This is particularly true for strategies where technology development, inflation or a different ownership time frame are expected to change the economic prospects of a strategy. 3. Strategies that are not economically viable. Costs for these elements must be justified through trade-out with other building elements, incentives or allocation from marketing budgets. As described above, the economic analysis of a sustainable development project requires consideration of the impact of sustainable strategies on the 12 elements of the financial return equation from the proper perspective (in our case: the building, block or cluster level). The ownership of the benefits from the sustainability strategy also needs to be considered. Moving beyond the individual strategy level we have seen that a branding strategy at the multi-building level has the potential to positively impact value if it is more clearly defined. We have also seen that increased flexibility and adherence to the environmental sustainability guidelines of the resource guide are expected to enhance economic sustainability, reduce risk and perhaps reduce the cost of capital for development. Roofscapes, Inc.

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